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S&P: Insurers face higher costs if UK leaves EU

UK insurers face extra costs when doing business in Europe if the UK votes to leave the European Union in a referendum, according to Standard & Poor’s (S&P).

The rating agency also believes a UK exit from the EU could “significantly dent” the trade surplus the UK derives from insurance and financial services, currently 3% of GDP.

The Conservative government has pledged to hold a referendum on EU membership by the end of 2017.

S&P said the UK leaving the EU “would likely entail additional costs of doing business in Europe” for insurers.

But the agency added that it did not think UK insurers’ operations “would be significantly curtailed”.

S&P said in its report on the potential exit: “While the EU represents about one-third of the UK’s very substantial financial services net export surplus, the insurance sector in the UK is far more reliant on trade with non-EU countries, especially the US.

“The impact of a Brexit on the UK financial services industry would depend to a great degree on what trade agreements the UK Government could make to replace EU membership.”

S&P also said that the size of the dent caused by a UK exit to the trade surplus from financial services would depend on future trade agreements.

S&P credit analyst Frank Gill said: “The extent of this impact will crucially depend on what alternative free trade arrangements the UK government could agree with its European partners in the event of an exit.”

According to S&P, financial services attract 30% of the foreign direct investment (FDI) into the UK, equivalent to 17% of GDP.

Almost a half of the FDI into UK financial services comes from EU investors.

Britain leaving the European Union poses “a grave threat” to jobs and business in the London insurance market, according to Lloyd’s, the International Underwriting Association of London (IUA) and insurer Fidelis.
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